ECB's Interest Rate Hike Lifts Exporters' Confidence

London - 11 May 2011

• UK Exporters are cheered as pound sinks to a near 14-month low against the euro, following the ECB’s rate announcement

• Exporters’ confidence in current international trading conditions is at the highest level since the index began (84%)

British exporters’ confidence in the UK economy and trade opportunities has led to a three point increase in the Travelex Confidence Index, released today. The Index, which measures the sentiment of UK businesses trading internationally, has regained the high seen earlier this year and currently stands at 106 – five points higher than at the same time last year.

Since March, exporters’ confidence in the UK’s economy has increased by 25% to 55%. The European Central Bank’s April interest rate rise and the consequent strengthening of the euro have combined to provide exporters with a competitive edge in the international marketplace and a renewed confidence in current and future trading opportunities.

Exporter confidence is also being propped up by the Government’s stated objective to target an export-led economic recovery, with 58% of exporters believing its policies are effective compared to 32% in March, before the Budget announcement – a rise of 81%.

Despite recent disappointing economic data, the outlook for both importers and exporters is rosier than expected, warmed by the sunshine, bank holidays and royal celebrations. More than four in five (81%) exporters are confident that international trade conditions will improve over the next 12 months, up from 62% in March.

“April revealed a blossoming of confidence amongst UK exporters in trade conditions and the economy. Interest rates play a strong role in determining the strength of currencies and we can clearly see this playing out in April. Not only has European Central Banks’ hawkish approach hugely supported the euro, it has also energised UK exporters, who are brimming with confidence with the resulting weakening of the pound.

“Although export trade is emerging as a strong contender to boost UK economic growth it is vulnerable to any change in the outlook for the eurozone interest rates. The ECB’s less hawkish than expected stance on policy has already seen sterling recover from its lowest in more than a year as investors temper their outlook. If that theme gains traction in the coming weeks, it suggests a softer euro/sterling which might bode better for UK importer sentiment.

“The ‘Royal Wedding Effect’ has also provided a welcome boost to UK businesses, together with the warm weather. Although many commentators had warned against the disastrous business impact of the April Bank Holidays, the wedding was a fantastic showcase for British exports. The surge of interest in Britain and British products has shown that there was never a time to be more proud of products ‘Made in Britain’.”